UBS takes bigger than expected hit

UBS third-quarter figures are in the red for the first time in nine years Keystone

Switzerland's biggest bank, UBS, has suffered a bigger-than-expected loss for the third quarter after accumulating huge charges on the United States subprime market.

This content was published on October 30, 2007 - 08:49

The bank is the latest high-profile institution to announce a big write-down on exposures to investments linked to US mortgage loans.

UBS said on Tuesday that its pre-tax loss was SFr726 million ($624.8 million), the first in nine years for the third quarter. This loss was higher than most analysts expected, with estimates running at around SFr670 million.

The bank had to take charges worth SFr4.2 billion on subprime related losses. It made a net profit of SFr2.199 billion in the third quarter last year.

UBS is the latest financial giant to suffer as a result of the downturn in the US housing market, following similar losses at Citigroup and Merrill Lynch. Deutsche Bank has also signaled that it would take a hit.

"Our third-quarter result was unquestionably disappointing," said chief executive Marcel Rohner, adding that the bank was changing the way it manages its market investments.

UBS added that its investment bank was unlikely to break even in the final quarter and repeated warnings of further write-downs.

"The fourth quarter has started with good results from all businesses, including the investment bank," said the bank in a statement.

"However the fixed income, currencies and commodities business remains exposed to further deterioration in the US housing and mortgage markets."

Rohner declined to give any detailed forecasts on Tuesday. "The range of possible outcomes is widening," he said.

Ratings downgrades by credit ratings agencies could lead to further write-downs on the bank's securities portfolio, it said.

Management shake-up

UBS had warned earlier this month that it would suffer major losses from its subprime dealings. The announcement coincided with a management shake-up, with the departure of the head of investment banking, Huw Jenkins, and that of the chief financial officer, Clive Standish.

At the same time, the bank said that it would cut 1,500 jobs in the US. No further cuts are expected.

The bank also took the highly unusual step of re-issuing its profit warning for a second time on Monday to counter weekend media speculation that losses might be higher than suggested. The second statement also hinted that the problems would not go away in the next quarter, after market turmoil worsened during the middle of the month.

UBS's main rival, Credit Suisse, has already stated that it had not been as badly hit by the subprime crash and that it expected to announce a third quarter profit on Thursday.

UBS has been going through a turbulent year. Rohner only took up his position in July after the shock exit of Peter Wuffli, who had come in for criticism of his handling of the bank's in-house hedge fund, Dillon Read.

Wuffli had led the bank on a growth path, expanding from its traditional base in private banking and rapidly building up its business in the US. Dillon Read's closure was announced in May after

There was some good news for UBS on Tuesday, with new net money in wealth management worth SFr40.2 billion, up from SFr26.8 billion in the third quarter of last year.

swissinfo with agencies

In brief

UBS was created in 1998 from the merger of Union Bank of Switzerland and the Swiss Bank Corporation.

The firm's first major acquisition in 2000 was PaineWebber, the fourth-largest securities broker in the United States. This filled a strategic and regional gap in UBS's wealth management business.

In June 2003, the bank adopted the single UBS brand for all its major businesses.

UBS oversees more than SFr.3.1 trillion ($2.6 trillion) in assets and wealth, making it the world's largest keeper of rich people's fortunes.

Private banking accounts for more than 40% of UBS revenue.

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